2022 (10) TMI 1224 - HC - GST

Seeking protection from arrest (anticipatory bail) for the alleged offence u/s. 132 of the Central and Maharashtra Goods and Services Tax Act - Availment of irregular ITC - whether the gravity and seriousness of the accusations would require custodial interrogation? - HELD THAT - Admittedly, there is no final adjudication at the instance of the Department and all the documents required for the purpose of investigation, are already in possession of the respondent and not only this, a sum of Rs.2.22 crores has been paid to the Department though under protest, to establish the bonafides. The investigation being based on documents, the Department has failed to make out any case for custodial interrogation, particularly when the GST Portal has all the supporting documents including the sales and input invoices and even all books of accounts are also filed with the Ministry of Corporate Affairs. The investigation and inquiries are initiated in December 2021, but still there is no crystallization of the accusations barring the show cause notice being issued. In any case, even on conviction, the maximum punishment that would be imposed would be imprisonment upto five years. The present case arises out of a tax dispute and the interest of the respondent no.1 can always be protected on the claim being adjudicated and the tax payer being directed to pay the tax. Moresoever, the offence under the GST Act, except with the limited exception of previous conviction are compoundable. Primarily, the GST is a revenue statute to collect the tax on every transaction of supply of goods or services or both and imposition of penalty is prima facie ancillary purpose of the statute. The order passed by the Addl. Sessions Judge, Mumbai, rejecting the Anticipatory Bail Application, perfunctory in nature as except recording that the nature of offence being economic one, the same is rejected. A balance has to be struck between the principle of liberty and the right of the Department to investigate. The learned Judge has recorded a prima facie finding that the applicants are actively involved in the act of availing ITC without actual movement of goods or services, and therefore, the protection is denied. There is no discussion about the need for custodial interrogation of the applicant and whether the custody would be warranted when the offence is punishable with an imprisonment of less than 7 years. In the event of their arrest, the Applicant no.1 Narendra Amrutlal Patel and applicant no.2 Ashok Girdharilal Mewani shall be released on bail on furnishing P.R. bond to the extent of Rs.50,000/- each with one or more sureties of the like amount and other conditions imposed - application allowed.

Issues Involved:
1. Protection from arrest under Section 132 of the Central and Maharashtra Goods and Services Tax Act.
2. Validity and necessity of custodial interrogation.
3. Compliance with procedural safeguards under Section 41 and 41A of the Cr.P.C.
4. Consideration of bail under economic offences.
5. Constitutionality of Section 16(2)(c) of the CGST/MGST Act.
6. Rejection of anticipatory bail by the lower court.

Detailed Analysis:

1. Protection from Arrest under Section 132 of the Central and Maharashtra Goods and Services Tax Act:
The applicants, directors of a construction company, sought protection from arrest for alleged offences under Section 132(1)(c) and (f) of the CGST/MGST Act. The investigation initiated on 7/12/2021 alleged a mismatch liability of approximately Rs. 23 crores due to disallowed Input Tax Credit (ITC) from suppliers whose registrations were canceled. The applicants contended that they had no intention to defraud and had begun making payments in tranches.

2. Validity and Necessity of Custodial Interrogation:
The applicants argued that custodial interrogation was unnecessary as the transactions were not "sham and bogus," and the suppliers were initially registered under GST. They also highlighted that the constitutionality of Section 16(2)(c) of the MGST/CGST Act is sub judice. The court examined whether the applicants' custodial interrogation was necessary, considering that the investigation was based on documentary evidence and the applicants had already paid a significant amount under protest.

3. Compliance with Procedural Safeguards under Section 41 and 41A of the Cr.P.C.:
The court referred to the principles laid down in Arnesh Kumar vs. State of Bihar and Satendra Kumar Antil vs. CBI, emphasizing that the power to arrest must be exercised with caution and only when necessary. The court noted that the procedural safeguards under Section 41 and 41A of the Cr.P.C. should apply to arrests under the CGST/MGST Act, ensuring that arrests are justified and based on credible material.

4. Consideration of Bail under Economic Offences:
The court reiterated that economic offences, while serious, do not automatically warrant denial of bail. The principle that "bail is a rule and jail is an exception" was emphasized, and the court considered whether the applicants posed a flight risk or had criminal antecedents. The court found that the applicants had no criminal history and had cooperated with the investigation, making custodial interrogation unnecessary.

5. Constitutionality of Section 16(2)(c) of the CGST/MGST Act:
The applicants highlighted that the constitutionality of Section 16(2)(c), which deals with eligibility for ITC claims, is under adjudication before multiple High Courts. This ongoing legal challenge was considered while evaluating the necessity of custodial interrogation and the applicants' intent to comply with tax obligations.

6. Rejection of Anticipatory Bail by the Lower Court:
The court found the lower court's rejection of anticipatory bail to be perfunctory, lacking a detailed analysis of the need for custodial interrogation. The lower court had primarily relied on the nature of the offence being economic without considering the principles laid down by higher courts regarding bail and the necessity of arrest.

Conclusion:
The court granted anticipatory bail to the applicants, emphasizing the need to balance the principles of liberty with the right of the department to investigate. The court imposed conditions to ensure the applicants' cooperation with the investigation and prevent tampering with evidence. The decision underscored the importance of procedural safeguards and the principle that bail is a rule, especially in cases involving economic offences.

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